Momentum is building across the U.S. for commercial PACE programs that drive energy efficiency, renewable energy, and in some cases, water conservation measures.
Commercial PACE is completely voluntary. Property owners can determine if they will benefit from making their buildings more efficient. Only participating properties are subject to a specific PACE assessment. PACE can make it easier for owners of commercial property to implement energy efficiency and renewable energy projects that can save them money, make their properties more valuable, and create local jobs.
Benefits of PACE for Commercial Real Estate Owners
- No up-front costs & funds available for up to 20 years
- Immediate benefit to cash flow raises Net Operating Income
- Solves split incentives issue
- Increases building value & building efficiency
- Treated like other property taxes and assessments
- No additional debt load
Benefits of PACE for Commercial Mortgage Lenders
- Assessment mechanism is well understood
- Increased Net Operating Income improves mortgage coverage
- Increased value of collateral outweighs lien exposure
- PACE can finance needed capital improvements with no additional debt
How Commercial PACE Works?
Commercial PACE program could be put in place using the following simple steps:
Step 1: State and local governments establish, in law or public policy, a specific goal or objective: promoting energy efficiency as a means to promote jobs or better air quality, for example. A municipal government may establish a type of land or real property secured benefit district.
Step 2: Property owners within the district (or the municipality if a district is not required) can voluntarily choose to participate and an experienced contractor assesses the scope of desired improvements. This may involve a thorough energy audit for efficiency measures and their projected savings and costs, or cost estimates for renewable projects weighed similarly against projected energy savings.
Step 3: The municipality provides financing for the project, typically by selling bonds secured solely by payments made from participating property owners.
Step 4: Homeowners who receive a financing benefit from the municipality will agree to accept a property tax assessment or charge for up to 20 years, though shorter periods may be chosen or required by the municipality.
These 4 simple steps improving energy security for states and local communities by reducing their reliance on inter-state imports and strain on an already overloaded and outmoded grid system.
PACE Programs by State
Commercial PACE programs were pioneered in Boulder County, Colorado and California (Sonoma County, Palm Desert, and Placer County). These programs have made a total of 71 PACE commercial financings, proving that PACE can be an attractive source of capital to non-residential property owners. A study published in 2011 by Lawrence Berkeley National Lab, the Clinton Climate Initiative, and Renewable Funding summarizes the results of these early programs.
Commercial PACE Case Studies
There are several commercial PACE projects that deserve special attention. For instance, Simon Properties Group – the largest mall owner in the world – took advantage of PACE financing. The company has installed a “Cool Roof,” a highly reflective and emissive roofing system that stays 50 to 60 degrees cooler than a typical roof, on its property in Santa Rosa, California. This state-of-the-art concept was made possible entirely through the Sonoma County Energy Independence PACE program. Check out a full story about Santa Rosa Plaza in California.
Another notable commercial PACE project was undertaken in Edina, Minnesota. A local business owner was looking for the most cost-effective way to put solar panels on his roof, while a local contractor was looking for a way to sell solar panels. PACE was a perfect solution for both parties. A low-cost commercial PACE program was set up in Edina and a project was financed this spring. The Edina model for PACE demonstrates how private demand for energy improvements, coupled with public resources, produces inspiring results. Read our feature story on Edina PACE program.
Commercial PACE Service Providers
A growing number of companies are providing a range of administrative and financing services to PACE programs nationwide. PACENow is keeping track of most PACE service providers. If you would like to list your business on our site, please contact us via e-mail: firstname.lastname@example.org.
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There are other EE/RE financing models out there. Please check out our brief summary of other financing models.
The EPA’s Portfolio Manager tool allows building managers and owners to consistently track building energy use. There are over 35,000 buildings that entered their data in Portfolio Manager. From 2008 to 2011 their average annual savings is 2.4%, which translates into:
Additionally, the U.S. Department of Energy released a number of template documents for commercial PACE program administration.